lion gold corp case study
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Lion Gold Corp Case Study. Tan Weihan. Disclaimer and Declaration. - PowerPoint PPT PresentationTRANSCRIPT
LION GOLD CORP CASE STUDYTan Weihan
Disclaimer and Declaration
The objective of the presentation is for educational purposes. The full content of the presentation is for illustration purposes only and should not be used as investment recommendations. The presenter is not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss.
The presenter may have personal interest in the particular shares presented.
Agenda
Company Background1
Industry Overview2
Ratio Analysis3
Valuation4
5 Risk
Company Background
LionGold Corp Ltd is a Main Board SGX listed investment holding company focused on gold mining, mine development and exploration. Primary gold interests are currently in Ghana and Australia.
Company Background
Source: Company’s Presentation Slides
Source: Company’s Presentation Slides
Company Background
Company Background
Source: Company’s Presentation Slides
Business Model
Source: Annual Report
86.74; 72%
33.49; 28%
Office Equipment Gold Division
Revenue Breakdown for 2013
Business Model
Source: Company’s Presentation Slides
Business Model
Source: Company’s Presentation Slides
Business Model
Source: Company’s Presentation Slides
Business Model
Source: Company’s Presentation Slides
Industry Outlook
• Central Bank become Net Buyers of Gold
Source: CPM Group
Industry Overview
Source: World Gold Council
• Gold jewellery, bars, coin still in Demand
Industry Overview
Source: CPM Group
• Gold Mining hits a Plateau
Industry Overview
Source: Bloomberg. Barclay Research
• Diminishing Margin Return for Gold Mining
Recent News
Source: SGX Announcement
• Liongold on course to achieve 40,000 to 50,000 production annual target
Ratio AnalysisRatio Analysis FY2008 FY2009 FY2010 FY2011 FY2012 FY2013Growth rate (%YoY)Revenue 4.58% -10.62% 19.20% 10.36% 29.79%EBIT 14.21% -158.80% -88.06% -8807.18% -61.55%Net proft 0.93% -157.89% -67.12% -3066.95% -69.89%ProfitabilityGross Profit Margin 5.48% 14.07% 12.53% 10.65% 8.51%Net Profit Margin -6.26% 4.05% 1.12% -30.04% -6.97%Return on Asset -8.77% 3.89% 1.15% -31.70% -3.48%Return on Equity -24.68% 11.05% 3.63% -157.10% -6.82%LiquidityCurrent Ratio 1.72 1.80 1.38 1.87 2.52 2.73Quick Ratio 1.05 1.17 0.70 0.75 1.59 2.39Cash Ratio 0.44 0.61 0.08 0.02 0.52 2.04SolvencyDebt to Equity 0.03 0.05 0.02 0.27 0.93 0.17Interest Coverage 139.67 70.17 NA NA NA NASolvency -6.66 -2.44 3.71 0.07 -0.89 -0.20
Did not generate returns for shareholders
Solid cash balance with no default risk
Valuation
• Methodology – Enterprise Value/Resource Comparison– Discounted Cash Flow
Valuation (EV/Resource)
Source: Bloomberg and respective company websites
• Enterprise Value – How much are you willing to pay to buy the
company?– Market Cap + Debt + Preferred shares - Cash
Valuation (EV/Resource)
Source: Bloomberg and respective company websites
• Fair Value– Current Share Price: $0.154
– Gold Company Valuation Median : 217– Lion Gold EV/Resource : 17– Fair Value Calculation
Fair Value = 217 / 17 x 0.154 = $1.96
Valuation (EV/Resource)
• Profit / FCFF projection
Valuation
Valuation - AssumptionsBeta 0.19
Risk Free Rate 3.00%
Market Risk Premium 7.00%
Cost of Debt 6.50%
Cost of Equity 4.36%
Equity Funding 137,312
Debt Funding 42,761
WACC 4.87%
Terminal Growth 3.00%
Total Outstanding Shares 858199
Total Debt 42761
Valuation – DCF Assumption
Valuation – Fair Value
• Low valuation, because financial reports had shown that Lion Gold been unable to generate returns for shareholder
Trading Data
52 Weeks Trading Range $0.14 - $1.76
Avg Volume (3 mths) 14.6 mil
Market Cap $141.98 mil
Source: Yahoo Finance
Main Risks
• Valuation assumes cash cost per ounce remains stable at USD $1200/oz for the next 5 years
• Fluctuation in Spot Gold prices is likely to have an impact on the profit margin of Gold mining companies.
Main Risks
• Recent plunge in share price means that Lion Gold is unable to use its strategy of using share placement for acquisition of gold mines.
• Default Risk – Very Low– Current ratio = 2.73x– Interest coverage = NA– D/E ratio = 0.17– Loans maturing this year = $2.7 mil– Cash = $46 mil
Conclusion
• Lion Gold Corp had been using a acquisition model to grow its business however due to the sudden plunge, their M&A model is likely to be halted.
• Low Enterprise Value to Resource makes Lion Gold a potential takeover target for large capital group or bigger gold mine
• Lion Gold is asset rich, however the jury is still out on whether they can continue to create returns for Shareholders, thus explaining the low valuation for this counter.